No specific performance of a Development Agreement when fundamental terms are not specified, Delhi HC

The Delhi High Court has held that specific performance of a Development Agreement cannot be granted when its fundamental terms are not specified and the parties are yet to agree on them..The judgment was passed by a Single Judge Bench of Justice Navin Chawla..A petition was filed by SITAC Pvt Ltd (petitioner) under Sections 14(2), 17 and 29 of the Arbitration Act, 1940, seeking a direction to the arbitrator to file the arbitral record and the arbitral award. The petitioner sought to make the award a rule of court and a decree against the respondents..The disputes between the parties pertained to a Development Agreement executed between the petitioner as builders and three other parties in 1985 with respect to a property..While respondent no 1 was the owner of the property, respondent no. 2 was the tenant in the property and respondent no. 3 was the occupier..The petitioner and respondent nos. 2 and 3 had executed another agreement wherein the latter agreed to vacate the property subject to certain conditions including that the petitioner shall, at its own cost, make available to respondent No 3 alternative accommodation..The disputes between the parties arose after respondent no. 1 cancelled the Development Agreement. The petitioner then invoked arbitration to settle the dispute..The Arbitrator held that the petitioner had carried out its obligations under the agreement and there was no justification for the respondent no. 1 to cancel the Agreement. The Arbitrator, therefore, held that the petitioner was entitled to enforce specific performance of both the agreements..As the claim of the petitioner for specific performance was granted, the Arbitrator did not award damages in lieu of specific performance, but granted costs of Rs. 5 lakh in favour of the petitioner..Respondent no. 1 objected to the award before the High Court. It was submitted that the Arbitrator should have exercised his discretion and not directed the specific performance of the agreement. He claimed that specific performance being discretionary, the Arbitrator should have exercised discretion by awarding damages instead of directing specific performance..It was further argued that Section 10 of the Specific Relief Act, as it stood before the amendment, would not be applicable. For the purposes of Section 10, the immovable property ought to be sufficiently identifiable..Relying upon the agreement, it was submitted that the parties were yet to agree on certain stipulations including the plans for construction. Therefore, the description of the property was still vague and incapable of being identified..It was also contended that a contract dependent on personal volition of parties, like in the present case, could not be specifically enforced..The petitioner defended the specific enforcement of the Development Agreement on the ground that these contentions were never urged before the Arbitrator. It was claimed that the property was not only clearly identified in the agreement, but an interest has also been created therein in favour of the petitioner..It was pleaded that the bar on enforcement of contracts based on volition of parties in terms of Section 14(1)(b) of the Specific Relief Act, as it stood before the amendment, only applied to Contracts of personal services and merely because a party refused to perform its obligation under the Contract, it could not be said that an agreement would become unenforceable..The Court observed that by virtue of Section 10 the Specific Relief Act,1963, a breach of a contract to transfer an immovable property would be presumed by the Court as one which could not be adequately relieved by compensation in money..It also referred to the pre-amendment Section 14(1) and observed that where the non-performance of a contract could be compensated in terms of money or where a contract is of such a nature that the court cannot enforce specific performance, such contracts could not be specifically enforced..The Court added that an exception to such unenforceability under Section 14(1) was given under Section 14(3)(c) as a Contract for construction of any building. The exception was, however, subject to certain conditions like the building or other work ought to be described precisely in order to enable the court to determine the exact nature of the building, the plaintiff must have a substantial interest in the performance of the contract and the interest must be of such a nature that compensation in money for non-performance of the contract was not an adequate relief etc..Relying on the Supreme Court’s decision in Sushil Kumar Agarwal v. Meenakshi Sadhu (2018), the Court further recorded that a developer was entitled to seek specific performance of the Development Agreement in situations where he might have evicted or settled with the occupants, got land which was an agricultural land which was converted into non-agricultural use, a partial development of the property was carried out or third party rights in favour of flat purchases in the proposed building were created etc..The Court analysed the Collaboration Agreement against this backdrop and noted that before the disputes started, the building plans had not been agreed upon between the parties or received sanctions by the competent authorities..Therefore, although the shares of the parties in the constructed building were decided, what these building plans would be in the future was a matter of conjecture and supposition..Further, there was not much certainty provided in the agreement itself as to the quality of the construction and the material to be used for the project. Importantly, the Court also found that the Petitioner was only granted a license to enter upon the land for the purpose of raising construction and the legal possession of the plot remained with the owners i.e Respondent No 1..The Court also remarked that for the Development Agreement to be specifically performed, constant supervision and direction from the Court was required..It was also stated that as on the date of the agreement, there was no restriction as to height and number of storeys that could be constructed on the plot. However, in view of a subsequent order issued by the Government of India, the area of construction was also restricted, which was a fundamental change from the agreement..The Court thus concluded that although the termination of the agreement might have been on a frivolous ground, the same did not justify the grant of specific performance against the statutory presumption..It nonetheless agreed that the frustration of contract due to the change in local building bye-laws was brought about by the respondents due to their own breach of the agreement and they could not be allowed to gain out of the same..It thus stated,.“while these subsequent events would hamper the claim of the petitioner to claim the specific performance of the Contract, the same can have no effect on the claim of damages of the petitioner due to such breach of the Agreement by the respondents…As I have held that specific performance of the Collaboration Agreement cannot be granted and as the Arbitrator during the pendency of the present proceedings has died, I deem it appropriate to exercise my powers under Section 8(b) read with Section 20 of the Act to appoint an Arbitrator to consider the issue of damages.”.In view of the above, the Court appointed former Chief Justice of the Delhi High Court Rajendra Menon as an Arbitrator to determine the damages..The petitioner was represented by Senior Advocate Amit Sibal with Advocates Vinay P Tripathi and Abhinav Jaganathan..Respondent No 1 was represented by Advocate Kamaldeep Dayal..Respondent No 2 was represented by Advocates Sonal Sinha and Aastha Vashistha.